In last year’s World Happiness Report, the United States dropped out of the 20 happiest nations for the first time since the report began.

Last month in a visit to Wisconsin, the newly elected chair of the Democratic National Committee, told the crowd in Glendale, "There isn't one demographic group that's part of our coalition that we didn’t lose ground with. We have to figure out the how and who. It's going to take us a bit of time."

The answer, they were unhappy. For good reason. Since 1980 the real income of half the American households has barely moved. The half with the lowest incomes. The half that traditionally votes Democratic.

The inflation connected with the Covid epidemic was only the final straw that broke the donkey’s back. The forty years of stagnant incomes for low wage workers was what made the extra load too heavy. Democrats hadn’t delivered. It was time for a change.

When you are living on the edge, even small price increases can topple you. Numbers bring into sharp focus the painful squeeze at the bottom between stagnant wages and the increasing prices of necessities.

The 20 percent of households with the lowest incomes spend 35 percent of their incomes on food. As the price of food and housing and transportation and health care all increased by as much as a quarter over the past four years the unhappiness at the bottom increased. (Although the 20 percent of households with the highest incomes spend three times as much on food ($17,000 compared to $5,000) it comes to only 8 percent of their incomes.)

One complaint after the election was that Democrats didn’t have a message for the working class. Their pain was not felt. The pain of being squeezed.

Perhaps, there was no message for the pain because those crafting the messages felt no pain. From their perspective, Bidenomics was working. The rate of inflation was coming down. Employment was going up. They were not being squeezed between a low wage and prices still going up.

In a Gallup poll before the election, 71 percent of households earning less than $40,000 reported inflation was causing them significant hardship. In stark contrast, 71 percent of people earning over $100,000 reported that price rises caused them no hardship.

That pain turned into votes. In a CNN exit poll on election day, voters who said inflation was a severe hardship voted 76 percent for Trump. Those who said inflation had been no hardship voted 78 percent for Harris. The 2024 election was the first ever that a Republican won the under $50,000 income vote, and the first time ever that a Democrat won the over $100,000 income vote.

Inflation is a symptom, not the problem. Inflations are temporary. They come and go. The political and economic problem we have is inequality. Inequality that is pervasive and affects every part of our lives. Inequality that has been growing for more than 40 years and has reached levels not seen since the Gilded Age at the beginning of the last century.

Joseph Stiglitz, winner of the Nobel prize in economics, describes what has happened in America since 1980. “The rich are getting richer, the richest of the rich are getting still richer, the poor are becoming poorer and more numerous, and the middle class is being hollowed out. … The bottom 90 percent have seen a growth of only around 15 percent in their wages, while those in the top one percent have seen an increase of almost 150 percent and the top 0.1 percent of more than 300 percent.”

Other economic studies show that the lower your income was to begin with, the less you shared in any gains. The real income of the bottom 40 percent of households has not grown significantly since 1980 and the wages of the lowest wage workers fell 5 percent over the same time period. Inflation-adjusted hourly wages of young college graduates have also fallen.

Although the numbers show that income inequality is the major driver of economic angst and “it’s the economy, stupid” that determines elections, income inequality was not made an issue by either party in the recent presidential election.

Ignoring the inequality, Republicans amplified the anger, frustration and unhappiness bubbling below the surface. Directed it at immigrants and inflation, both easily associated with Democrats.

Democrats pitched an improving economy and warned a Trump administration would be an existential threat to democracy. The story of an improving economy didn’t fit the everyday experience of the Party’s traditional supporters. Voters who believed “democracy is in peril” split almost evenly between Harris and Trump.

Missing in all the post mortems I have seen is any recognition that growing inequality over the past 40 years was the stage on which the election played out. The decades of failure to act was the underlying cause that drove last November’s results.

Reversing inequality is always difficult. The last time inequality was this extreme, it took the Great Depression to shake up political alliances and all of FDR’s New Deal to rebuild the economy on a more level playing field.

It will be more difficult this time. The economy is now global. Capital can be invested anywhere. Labor is tied to a community. With the ability to move money instantly anywhere, capital has the ultimate bargaining chip. We will go somewhere else and invest. You will get nothing. The relative bargaining power of wage earners crashed.

Growing up in Rhode Island in the 1950s I watched the factories close and move to the South where there were no unions. Then, over the years, they moved to Mexico, then China, then Vietnam, then to wherever wages were lower, and safety and environmental standards less stringent.

It is not surprising that the shares of national income going to capital have increased and the shares to labor have gone down. Since 1970 the share of U.S. gross domestic income going to wages and salaries has dropped by one-fifth. The share going to corporate profits has doubled. In every recession since 1970, instead of shared pain, the corporate piece of the pie increased.

Still, whenever there is a move to increase wages, the Chamber of Commerce argues prices will rise, businesses will close, workers will lose jobs. Wages can rise only as fast as productivity, otherwise inflation will result.

The Chamber, however, hasn’t complained when productivity exceeds the growth in wages, and workers produce more than they receive back in wages and benefits. Only wages, not profits, contribute to inflation, it seems.

In the two and a half decades after World War II, increases in productivity and wages were almost identical, both rising about 90 percent. Income inequality did not increase. Over the next 40 years, hourly wages rose just 9 percent while productivity increased 74 percent. Income inequality jumped.

The story we tell ourselves about how the economy works has also changed. The new story reflects the change in bargaining power and justifies it. In the old story, labor, capital and raw materials together produced goods and services. The goal was a rising standard of living for everyone in the community. Shares in the accumulating wealth were negotiated by all the participants — workers, management and the owners of raw materials. Labor was one of the essential creative forces driving production.

That story began to change in the 1980s. Capital became the one driving force that produces economic growth. Entrepreneurs became the “creators” of jobs. Labor was demoted from a full partner in creating the nation’s wealth to beneficiary after the fact. Instead of work being part of the creative force, the job itself is the product. The question asked is always framed, “How many jobs will this create?”

In this view, labor is at best a cost. There is no community of interest, no joint venture. Capital is increasingly free from public criticism for moving to wherever financing is cheapest, wages are lowest and workers most docile. Companies and plants are sought after, courted and enticed by communities and states and their politicians because from them flow employment, well-being, tax revenues and the assurance of reelection.

Reversing a 40-year trend, changing the economic story we tell ourselves, and increasing the bargaining power of labor – all necessary if we are going to start leveling the playing field and reducing inequality – is a difficult hill to climb.

Can it be done? It would require making income inequality the focus of public attention. The subject we talk about, argue over, and debate.

The goal has to be clear. How we do that needs a well thought out plan. Bashing billionaires is just noise. Our imaginations have to be captured. We need a vision that resonates. A vision built on the understanding that reducing inequality and creating a more equitable economy both makes the economy more productive and helps everybody.

Wages have to increase. We can build from there. The rules for the economic game have to change if we want those at the bottom to have their share of economic power.

At the end of his book detailing the causes and effects of inequality, Stiglitz summarizes the changes required to reduce inequality.

Among them: curbing the excesses of the financial sector, enforcing competition in markets, tempering globalization, reforming bankruptcy laws, increasing the power of shareholders, ending corporate welfare, making the tax code more progressive, and rebuilding the social safety net.

For Stiglitz, it is not us against them. He doesn’t conjure a villain. He gives us a vision.

“This book is not about the politics of envy,” he writes. “This book is instead about the politics of efficiency and fairness. … A more efficient economy and fairer society will come from making markets work like markets – more competitive, less exploitive – and tempering their excesses. The rules of the game matter.”

Can the Democratic Party embrace this vision? Make equality the central mission? Deliver what the Declaration of Independence said 250 years ago was the purpose of government. Securing life, liberty and happiness. For the many.

Share

Leave a comment